Goodwill and Long-Lived Asset Impairment Loss and Other Charges

9 Months Ended

Oct. 31, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Long-Lived Asset Impairment Loss and Other Charges

OODWILL AND LONG-LIVED ASSET IMPAIRMENT LOSS AND OTHER CHARGES

Pre-contract Deferred Cost Write-offs

From time to time, the Company incurs costs before a contract is finalized and such pre-contract costs are deferred to the balance sheet to the extent they relate to a specific project and the Company has concluded that is probable that the contract will be awarded for more than the amount deferred. Pre-contract cost deferrals are common with Vista's business pursuits. As described in Note 3 Summary of Significant Accounting Policies, Vista has been pursuing international opportunities and was in the process of negotiating a large international contract that did not materialize in the fiscal 2016 third quarter as expected. Expectations were lowered as the timing and likelihood of completing certain international pursuits became less certain. While the Company continues to pursue international opportunities, it is not likely that major contracts will be successfully executed within the next twelve months as previously expected. Corresponding to these lower expectations, the pre-contract costs associated with these pursuits were written off during the fiscal 2016 third quarter. Vista recorded a charge of $2,933, (which is comprised of $2,075 of costs capitalized as of July 31, 2015 and additional costs of $858 capitalized during August and September 2015) for the write-off of these pre-contract costs. This charge is recorded in “Cost of sales” in the Consolidated Statements of Income and Comprehensive Income.

Goodwill Impairment Loss

In the fiscal 2016 third quarter the Company determined that a triggering event occurred for its Vista reporting unit, a subsidiary of the Aerostar division. The triggering event was caused by the lowering of financial expectations for sales and operating income of the reporting unit due to delays and uncertainties regarding the reporting unit’s pursuit of large international opportunities, one of which was expected to be awarded during the quarter. In addition, the Company made a change in the executive leadership of the reporting unit during the quarter. The Step 1 impairment analysis was completed using fair value techniques as of October 31, 2015. In determining the estimated fair value of the Vista reporting unit, the Company was required to estimate a number of factors, including projected revenue growth rates, projected operating results, terminal growth rates, economic conditions, anticipated future cash flows, and the discount rate. On the basis of these estimates, the October 31, 2015 analysis indicated that the estimated fair value of the Vista reporting unit was less than the carrying value. The carrying value exceeded the estimated fair value by $13,986, or 63.6%.

Pursuant to the applicable accounting guidance, the Company performed a Step 2 impairment analysis. In the Step 2 impairment analysis, the fair value determined was allocated to the assets and liabilities of the reporting unit. Based on this Step 2 impairment analysis, the resulting implied fair value of the Vista goodwill was determined to have no value compared to the carrying value recorded for the reporting unit, $11,497. This $11,497 shortfall was recorded in the current quarter as an impairment charge to operating income reported as "Goodwill impairment loss" in the Consolidated Statements of Income and Comprehensive Income.

There were no goodwill impairment losses reported in the three- or nine-month periods ended October 31, 2014 nor were there any accumulated goodwill impairment losses prior to October 31, 2015. Goodwill gross and net of accumulated impairment losses at October 31, 2015 was $52,209 and $40,712, respectively. Goodwill gross and net of accumulated impairment losses at October 31, 2014 was $25,234.

The changes in the carrying amount of goodwill by reporting unit are shown below:



	Applied Technology			Engineered Films		Aerostar (exc. Vista)		Vista			Total
Balance at January 31, 2015	$	12,550		$	27,312	$	789	$	11,497		$	52,148
Purchase price adjustment to acquired goodwill^(a)	—			206		—		—			206
Goodwill disposed from sale of business	(69		)	—		—		—			(69		)
Goodwill impairment loss (as restated)	—			—		—		(11,497		)	(11,497		)
Foreign currency translation adjustment	(76		)	—		—		—			(76		)
Balance at October 31, 2015 (as restated)	$	12,405		$	27,518	$	789	$	—		$	40,712

(a) Working capital adjustment and final deferred tax adjustment for Integra acquisition (see Note 6 Acquisitions of and Investments in Businesses and Technologies).

Long-lived Intangibles Impairment Loss

Pursuant to the applicable accounting guidance, the Company determined that the relevant cash flows for long-lived asset testing (the lowest level of cash flows that are largely independent of other groups of assets) are one level below the Vista reporting unit. For Vista, these levels were determined to be an asset group identified for the client private business (CP) and a second group for radar products and services (Radar). While these groups have financial dependence on each other and enable the other to operate in their respective markets of focus, there is little strategic or business interdependence. The two groups have few shared resources, assets or facilities, and long-lived assets are readily identifiable for each asset group. Based on the reassessment of the forecasts of cash flows and these asset groups, the Company concluded that certain long-lived assets of the Vista reporting unit, including finite-lived intangible assets, were impaired as of October 31, 2015.

Using the sum of the undiscounted cash flows associated with each of the two asset groups, a Step 1 test was performed for each asset group. The undiscounted cash flows for the CP asset group exceeded the carrying value of the long-lived assets and no Step 2 test was deemed to be necessary based on the recoverability of the long-lived assets. For the Radar asset group, however, the undiscounted cash flows did not exceed the carrying value of the long-lived assets and the Company performed a Step 2 impairment analysis for the long-lived assets.

In the Step 2 impairment analysis, the fair value determined was allocated to the assets and liabilities of the Radar asset group. The resulting implied fair value of the Radar asset group long-lived assets was $103 compared to the carrying value of $3,916 for the asset group. The shortfall of $3,813 was recorded in the current quarter as an impairment charge to operating income reported as "Long-lived asset impairment loss" in the Consolidated Statements of Income and Comprehensive Income. Of the total long-lived asset impairment of $3,813, $3,154 was related to amortizable intangible assets related to radar technology and radar customers, $554 was related to property, plant, and equipment, and $105 was related to patents.

There were no long-lived intangible impairment losses reported in the three- or nine-month periods ended October 31, 2014 nor were there any accumulated long-lived intangible impairment losses prior to October 31, 2015.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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